CrossAmerica Partners Prepares to Exit Direct Retail Operations

ALLENTOWN, Pa. — CrossAmerica Partners LP is making good on its strategic initiatives, moving closer to exiting direct retail operations and according to President and CEO Gerardo Valencia, the company is confident about delivering on its goals for the future.

In May, CrossAmerica and Alimentation Couche-Tard Inc. completed the first in a series of asset swaps.

"We completed our first tranche of the asset exchange with Circle K on May 21 in which we received 60 sites," Valencia said during CrossAmerica's second-quarter earnings call on Aug. 6.

The sites are now under CrossAmerica's wholesale fuel segment.

"We are now working on our second one and we have signed contracts with dealer for 65 additional sites. Most of which will be part of the second tranche of assets to be exchanged," he explained.

According to the chief executive, the company is completing its final due diligence and expect to the transactions finalized before the end of the third quarter.

Based on the current timeline CrossAmerica expects the final assets to change hands by the first quarter of 2020.

As part of the overall exchange agreement, CrossAmerica will receive 192 company-operated convenience and retail fuel stores in the United States. Of the sites, 162 are fee-based and 30 are leased. The transaction is valued at $184.5 million, as Convenience Store News previously reported.

CrossAmerica's general partner, CrossAmerica GP LLC, is a wholly owned subsidiary of Couche-Tard.

For its part, Couche-Tard's Circle K division will receive the real estate property for 56 U.S. company-operated convenience and retail fuel stores currently leased and operated by Couche-Tard/Circle K. 

In addition, Circle K will receive 17 company-operated stores in the upper Midwest region of the U.S. Fourteen of the sites are fee-based and three are leased. All of the 17 sites are currently part of CrossAmerica's retail segment.

Those assets also have an aggregate value of approximately $184.5 million.

In addition to the asset swap pact with Couche-Tard, CrossAmerica has been making progress on its rebranding efforts at the former Jet-Pep sites in Alabama. CrossAmerica acquired the sites in late 2017.

"Over half of the 90 sites have now been hard branded and reimagined through the Marathon brand, and we have changed dispensers in over half of the network," Valencia said.

"As we improve the network quality, we're seeing the benefits as we planned, optimizing the volume and profitability of the network, with an increase of 47 percent over the first half of 2018," he explained. "As we complete the work by the third quarter of the year, we expect further growth from these networks."

In addition, as the second quarter was coming to a close, CrossAmerica entered into a master fuel supply and lease agreement with Applegreen plc. Under the terms of the agreement, Applegreen will run 46 company-operated retail stores in the Upper Midwest.

"We are very excited to expand our relationship with them. They are very strong operator and we expect to finish the year with over 100 sites by the end of 2019," Valencia said.

Q2 Financials

In the second quarter, CrossAmerica reported $13.9 million in operating income and $6.4 million in net income. This compares to an operating loss of $1.6 million and a net loss of $6.9 million for the second quarter of 2018.

This resulted in adjusted EBITDA growth and strong distributable cash flow, Valencia noted. Specifically, adjusted EBITDA was $27.7 million and distributable cash flow was $22.3 million.

"As previously mentioned, we plan to exceed our direct retail operations to focus on working what we do best. We expect that as we do this, our adjusted EBITDA will actually grow as we generate efficiencies in this process," he said.

In addition, CrossAmerica will continue to assess other opportunities whether that is third party acquisitions or current assets at Circle K, according to Valencia.

"All of these will continue to be with discipline to continue to deliver growth. We are growing and delivering on our plan," he said.

Allentown-based CrossAmerica is a wholesale distributor of motor fuels and owner and lessee of real estate used in the retail distribution of motor fuels. Formed in 2012, CrossAmerica Partners LP is a distributor of branded and unbranded petroleum for motor vehicles in the United States and distributes fuel to approximately 1,300 locations and owns or leases nearly 1,000 sites. With a geographic footprint covering 31 states, the partnership has relationships with several major oil brands, including ExxonMobil, BP, Shell, Chevron, Sunoco, Valero, Gulf, CITGO, Marathon and Phillips 66.

CrossAmerica Partners is No. 64 on the 2019 Convenience Store News Top 100 list. Couche-Tard is No. 2.